Natural gas prices remain in a slump despite all those Austin Utilities customers who turned thermostats up last month to offset record below-zero temperatures and numbing wind-chill factors.

More demand should push prices up. Right? Wrong.

There’s a glut of natural gas.

The nationwide slump in natural gas prices is still another impact of the economic recession.

Manufacturers, who use even more gas than homeowners, have closed plants, shutdown production lines and otherwise curtailed their demand for natural gas.

The Wall Street Journal reported natural gas futures fell 9 percent in December 2008 to $5.910 per million British thermal units and were down 16 percent from December 2007 prices.

The price plummet has been steady.

The price settled at $5 per million British Thermal Unit in January, but natural gas for delivery in February was expected to dip below the $5 mark.

Perhaps as low as $4.51 per million British thermal unit.

One newspaper headline was hard to ignore in the hands of Austinites examining their utility bills after January’s visit from Mother Nature: “Winter chill can’t heat natural gas.”

The freefall of prices is expected to continue.

Despite how cold it felt to Austinites in January, Austin Utilities reported the last 30 day period saw natural gas consumption in Austin rise only 2 percent above January 2008 figures.

“If natural gas demand is down due to the recession, and the supply is up, driving prices down, what about the rates Austin Utilities customers pay?” budget-conscious homeowners may wonder.

Before answering that question, one must recall that natural gas prices soared above the $10 mark per 1,000 cubic feet last summer when crude oil prices hit a record high of near $150 per barrel in July 2008.

When crude oil prices slid downwards, so did the price for gasoline at the pump.

Then, natural gas prices began their downward spiral as the economy, particularly manufacturing, slowed dramatically.

Does that automatically mean a drop in the prices made by homeowners?

The average Austin Utilities customer is not a securities analyst, but there are things for all consumers to understand.

Kelly Lady is the energy services consultant for Austin Utilities.

One of the most important tools in her repertoire is the weather monitor on her office computer. That helps Lady, who negotiates natural gas contracts for Austin Utilities to gauge what usage will be.

Her goal is to literally help things run “smoothly,” but more about that later.

“The price we pay for natural gas is only one component of the overall price,” Lady said. “There is the cost of transportation, getting the gas to Austin, and there is also the overhead or the costs of delivery to our customers.”

“The price of natural gas we pay in a contract is already set,” she said. “We can’t renegotiate what we already have, because we already bought it.”

“If you were to have a large gasoline storage tank in your yard, and you bought gas at a certain time and filled it up, you can’t renegotiate the price of that. You already bought it, and it’s in the tank,” Lady said.

Locked into a contract, Austin Utilities will have not only the market price of natural gas, but the other two components: Transportation and delivery or internal costs.

A couple of years ago, Austin Utilities was forced to pay a 27 percent increase in its transportation costs to get natural gas through the pipeline to Austin.

The 27 percent increase was not unforeseen, but also impossible to completely offset. That resulted in some substantial increases being passed along to the utility’s customers.

The market price of natural gas is the largest single expense in the three-components setting the final cost.

Lady has a chart depicting historical gas prices and gas cost adjustments made by the utility.

The gas price chart shows the price peaking at $12 in mid-June 2008 and plunging to a low of $4 in October 2007.

Meanwhile, the utility’s gas cost adjustments during the same period show the price paid by consumers retaining a straight line through the peaks and valleys of price fluctuations.

“We make a commitment to buy gas on a three-year contract,” Lady said. “It’s like the commodities futures market. You may look at the most recent price, but if you want to buy out, for instance three years into the future as we do, you have to look ahead at what those prices are anticipated to be at that time and you pay that price.”

“We do that,” she said. “We buy a portion of our natural gas on the futures market and we also buy a portion of it on the monthly basis.”

Adjustments

Unfortunately, there is no crystal ball to gaze into to correct predict the future. In the case of home heating, it’s a gamble on Mother Nature and what kind of weather lies ahead.

Austin Utilities aggressively encourages its customers — commercial and industrial as well as residential — to undertake energy conservation measures. Energy audits can mean energy savings. Programmable thermostats are one device that can work in both the summer and winter, but just how much do the energy savings tips amount to … well … saving in months liked the frigid January?

“It’s still helping consumers,” Lady said of energy conservation. “IF you have leaking windows and put some of that plastic film on them to keep the cold out, it’s going to do more than if you have nothing.”

Energy conservation varies from home to home, but Lady’s rule-of-thumb is that for each degree a thermostat is set back, it can save one percent on a utility bill.

While the price of natural gas is falling, an economic recovery could change that in a hurry, Lady predicted. “As the economy improves and a lot of these plants that were shut down and closed come back on-line and more natural gas is being used, we can expect an increase in natural gas prices,” she said.

The utility does have some contracts which will “retire” soon and new ones negotiated in their place.

Austin Utilities also has a not-so-secret weapon that helps consumers avoid pricing pitfalls of all kinds: The Purchased Gas Adjustment.

“It’s actually the blend of all our different purchasing practices that helps us give a smooth rate to the customer,” she said. “When you see a spike in gas prices, our cost adjustments made on a monthly basis smooth things out.”

“Every month we look at how much we paid for gas and we fluctuate that with the cost adjustments,” she said. “Prices have been down and we have been returning that money to our customers.”

“The demand may go up and people may turn up their thermostats and use more gas, but the rate they pay remains smooth,” she said. “When natural gas market prices are hitting the rock bottom, we may not always have the lowest rate, but we won’t have the highest rate either.”

Austin Utilities is not ignoring the low natural gas available on the market. It buys a portion of its natural gas on a daily basis also to take advantage of the current low prices. That gas is “blended” with the natural gas bought on contract.

Lady didn’t hesitate when asked if Austin Utilities is doing its best to keep rates low for customers.

“Definitely,” she said. “We made a decision with the Austin Utilities board’s approval to try to keep rates smooth, because we think that’s what our customers benefit from the most.”

The energy services consultant concluded with an energy conservation plug.

“Energy efficiency and conservation is always going to help save energy costs by helping consumers use less,” she said. “Even when it’s the coldest day of winter, if a consumer hadn’t taken those measures they probably would have used more energy.”

“We work to help keep rates smooth to the customer,” Lady said. “But their best defense is still trying to be as energy efficient and conservative as they can.”

“They have control over that,” she said.

For more information about energy conservation tips available, call Austin Utilities at 507 433-8886.